Thursday, December 14, 2006

I have mentioned several times over the past year that I am hording pennies and nickels. We are currently in the midst of a commodities boom and the value of precious metals and non-precious metals (such as those used in current U.S. coins) has soared for the past 2 or 3 years. There are several reasons for the soaring prices that I will not discuss in detail here in this post (although I may discuss it in a future post), but among the chief reasons for this boom is the strong global demand for metals due to strong worldwide economic growth, as well as a devaluation of the U.S. dollar by the Federal Reserve that has increase the U.S. dollar value of commodities.

The value of the metals within several U.S. coins, including pennies and nickels, now exceeds the face value of the coins, as shown in the picture below that I acquired from coinflation.com, the best website I've seen for determining the intrinsic metal of various coins (click on the picture for a larger view). As one can see, the metal value of pre-1982 pennies is now 2.0752 cents (207.52% of face value), post-1982 zinc pennies have a metal value of 1.1257 cents (112.57% of face value), and nickels have a metal value of 6.9879 cents (139.75% of face value).

To realize the intrinsic metal value of these coins, one would need to melt them down to separate out the respective valuable metals. Up until yesterday, my understanding was that this practice was not illegal. I've never done so myself or heard of anyone actually doing so, but I read somewhere that this practice would not be prohibited.

The U.S. Mint has apparently been losing money by making pennies and nickels over the past year as it pays more for the metals used to make the coins that it receives in return when it sells the coins at face value to banks, etc. As of today, the U.S. Mint has made it illegal to melt down pennies and nickels. It is also illegal to transport more than $100 worth of pennies and/or nickels out of the country unless it is for legitimate coinage purposes. The penalty for violation of this new rule is a penalty of up to five years in prison and a fine of up to $10,000 for people convicted of violating the rule.

In case anyone had any doubts about whether collecting pennies and nickels is worthwhile, the U.S. Mint's implementation of the new rule should quell such doubts. It's only a matter of time until the U.S. Mint changes the metal composition of pennies and nickels to include less expensive metals, a move that would likely increase the collectible value of current pennies and nickels.

Thursday, December 07, 2006

November was another great month for my Hypothetical Model Portfolio. As of the market close on November 30, 2006, the Hypothetical Model Portfolio* increased in value by $3934.75, or about 3.46% during the month of November. The Hypothetical Model Portfolio is now up $17,812.56 in 2006, a gain of 17.81%, as shown on the table below (click for a larger image of the table).

Emerging markets led the way in November, with the Templeton Russia closed-end fund (TRF)appreciating about 13.86% and the iShares Emerging Markets ETF (EEM) returning about 5.98%. Mid caps, small caps, and tech stocks were also strong performers. The Vanguard Mid Cap Index (VIMSX), the Vanguard Small Cap Index (NAESX), Vanguard Small Cap Value Index (VISVX), and the Nasdaq 100 ETF (QQQQ) rose 3.83%, 3.04%, 3.10%, and 3.43%, respectively. The only other ETF or fund to return more than 3% in November was the Vanguard Developed Markets Index mutual fund (VDMIX), which returned about 3.83%. (VDMIX tracks the broad-based foreign stock MSCI EAFE index.)

The stock market continues to look strong as 2006 comes to an end. With a slight surge in December, my Hypothetical Model Portfolio can close the year up 20%.

*The Hypothetical Model Portfolio was hypothetically created with an investment of $100,000 with investments made as of the closing values on December 30, 2005. The reason why the total cost in the chart is greater than $100,000 is because the total cost accounts for the value of dividends reinvested into the mutual funds in the portfolio.